E-Commerce in Healthcare: Changing the Traditional Landscape

Ajay K. Aggarwal, PhD; Steven Travers, MS, MBA

ABSTRACT The healthcare industry, with more than one trillion dollars in revenue, accounts for about one-seventh of the U.S. economy. A signicant portion of this revenue is lost to escalating healthcare system costs. This article examines the shortcomings of the traditional healthcare delivery system in terms of information ow, communication standards, case collections, and IT spending. It makes the case that e-commerce has the ability to transact some healthcare business more efciently and cost-effectively. With the Internet as a delivery platform, several models offer improvement over the status quo. KEYWORDS Healthcare Web On-line Technology B2B B2C E-commerce Healthcare expenditures account for about one-seventh of the U.S. economy. Despite this, the healthcare industry is plagued by escalating service costs, declining patient benets, and poor customer service. In a recent survey, 59 percent of Americans said they felt that the healthcare system needs a major change.32 This article examines the weaknesses of traditional healthcare practice, reports on innovative changes brought about by business-to-business (B2B) and business-to-consumer (B2C) e-commerce models embedded with state-of-the-art technologies, and offers comments on e-commerce concerns and managerial implications.
JOURNAL OF HEALTHCARE INFORMATION MANAGEMENT, vol. 15, no. 1, Spring 2001 Healthcare Information Management Systems Society and Jossey-Bass, A Publishing Unit of John Wiley & Sons, Inc.

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Traditional Healthcare Practice

Most healthcare organizations have preserved their well-established business practices, that is, they have focused on reducing operating costs while trying to expand market share. The current healthcare supply chain is dauntingly rigid; it is inuenced by tradition, legacy technologies, and existing power bases.7 In the current healthcare landscape, links between the provider and the patient are nonexistent. Most of the interaction between the two occurs at the point of servicefor example, in a hospital. The characteristics of this system may be summarized as follows: Most healthcare computer networks are proprietary, each one supporting different communication standards. As a result there is poor ow of information between networks. Healthcare providers typically carry 90120 day receivables, some of which are never collected. The referral process between providers is often costly and inefcient, sometimes involving ten to fteen steps and a $40 cost per referral. Information technology (IT) spending is low (2 percent of revenues) compared to other industries. Given this scenario, improved performance with contained long-term costs becomes hard to accomplish by cutting budgetary expenditures. A more pragmatic and effective approach lies in driving the costs out of the supply chain by investing in process improvements and technological resources. Supply chain refers to the logistic chain from the suppliers of healthcare to the patients. In order to achieve success under this paradigm, several objectives are imperative for the healthcare industry:7 Remove non-value-added activities and leverage economies of scale from the supply chain. Reduce redundant processes, and eliminate bottlenecks and inefciencies in the system. Develop shared access to timely and accurate information about logistics functions, order performance, and customer preferences. Improve information access, promote customer convenience, improve inventory management, and reduce order cycle times.

An Introduction to E-Commerce
E-commerce appears ready to assist the healthcare industry with its reengineering effort. The term e-commerce refers to the use of electronic information technologies to conduct business transactions among buyers, sellers, and other trading partners. It combines business and electronic infrastructures, which

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allows traditional business transactions to be conducted electronically, ignoring the physical or geographic boundaries separating them. E-commerce uses the Web as an infrastructure, which offers the advantage of providing a universal software client (the Web browser) and a ubiquitous infrastructure (the global Transport Control ProtocolInternet Protocol network known as the Internet) that can serve as a ready-made platform. This vastly reduces the costs of setting up as an e-commerce merchant because it eliminates the need for each vendor to develop, distribute, and support a software client and maintain a dedicated network and dialing-access facilities.4 There are two types of e-commerce infrastructures: (1) Web-based and (2) EDI (electronic data interchange). Web-based e-commerce generally involves the use of a browser that interacts with a Web server that does the transaction processing. This arrangement has been commonly used for B2C-type transactions. In contrast, EDI transactions have typically been used for B2B transactions. However, they are expected to decline, making strides toward Web-based transactions.6 The second annual National Managed Health Care Congress (NMHCC) IT survey shows that for both payers and providers of healthcare, moving their B2B and B2C transactions to the Web was their highest IT priority. The survey suggests the need for easier and more cost-effective remedies for better communication in a disparate healthcare setting. The non-Web-based solutions to accomplish this either took too long or advocated signicant changes in the delivery process.32 E-commerce comprises business processes, technology, and collaboration among stakeholders. In the healthcare eld, e-commerce has the potential for laying the foundation for efcient and effective transactions between employers, payers, providers, and patients at low cost.2 In the short term, e-commerce will probably affect the way the orders are processed; in the long term, it will probably affect what will be ordered. For instance, the need to receive invoices in paper form and then manually rekey them in an accounts payable system could be eliminated; or the underlying business process could be made to function more efciently by eliminating the need to hold excess inventory.7 The projections for high growth rate that are associated with the Internet, with trafc doubling every one hundred days and supporting eighty-three million users in the United States currently, may be attributed in part to the 500 percent annual growth rate of e-commerce transactions.4,6 Internet usage is expected to continue to grow and outpace all other remote purchase channels, including catalogue and telemarketing channels.1,7 The size of the e-commerce market is expected to top $1 trillion within the next decade. It was anticipated that the healthcare industry would experience the biggest boost in e-commerce, increasing from 6.1 percent of all transactions to 33.3 percent by year 2000an increase of 546 percent.6,62,64 Security and legal concerns were typically the reason for rms being slow to jump aboard the e-commerce bandwagon. Both have been addressed to a signicant extent,

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resulting in the E-Sign Act for e-commerce transactions. This bill, passed by the U.S. Congress in June 2000, puts legal force behind contracts, purchase orders, and other documents that are completed on-line without signature.30 For companies that could not jump aboard the IT bandwagon because of cost, companies like Hewlett-Packard provide all the technology, management processes, and global processes needed to conduct business on the Internet on a monthly lease basis, depending on usage. With the cost issue under control and the potential for signicant benets, e-commerce growth may be virtually assured, leading some to tout it as a concept that is too big to avoid, too risky to take lightly, and too potentially protable to ignore. 3,3,18,27,29,40 Healthcare: B2B. B2B healthcare e-commerce involves transactions and the exchange of information among vendors, hospitals, insurance agencies, state and federal regulators, and doctors ofces. Patientsthe end consumersare not directly involved. Forrester Research estimates that by 2004, $2.7 trillion worth of business, accounting for 17 percent of the total economy, will be conducted via B2B e-commerce. The B2B on-line healthcare market is estimated to rise in value from $6 billion in 1999 to $348 billion in 2004, making it one-sixth of the overall trade in the healthcare industry.63 The primary emphasis of B2B e-commerce is on the supply chain. B2B strives to accomplish three goals: improve efciency, reduce transaction costs, and provide real-time information to all concerned. Efciencies are improved typically by simplifying the delivery of healthcare. Multilayer approvals are abolished and replaced by simpler and faster ones by using articial intelligence technologies. Inventories are better managed and tracked by locating them centrally and sharing information on usage and future demands. Proactively managing illnesses and implementing preventive health maintenance measures helps avoid prolonged hospital stays. For instance, ePhysician.com allows physicians to write prescriptions on-line using palm tops. Physicians can interact with clinical systems not just to write prescriptions but to order lab tests and view patient information. Vendors such as Claimsnet.com allow providers to submit claims on-line to payers; it uses only one standard for claims submission. As an example of order processing, e-commerce would enable the healthcare provider to swipe a clients health insurance fund membership card on a dialup terminal, enter the appropriate data, and immediately receive payments for the funds contribution to the service provided; the client then pays the balance. 7,16,17,18,51 Reduction in transaction costs occurs by reducing the costs of executing purchase orders with vendors, reducing the costs of payment of goods and services, and reducing the cost of transfer of vital information. These are all generally accomplished by pooling together the requests of different departments or groups to qualify for quantity-receiving discounts, getting the latest pricing information, and using the Internet to process all transactions. Agreement of companies like empactHealth.com with Health Management Associates (HMA) and Columbia/HCA that exclusively use the empactHealth.coms

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on-line requisitioning, ordering, and purchasing network for all medical and nonmedical supplies and services, is an example of this.7,16 Real-time information provides status reports such as hospital utilization, treatment tracking, and revisions of information being exchanged. Reporting is accomplished by streamlining all communication standards, linking all healthcare constituents via the Internet backbone, and actively sharing information. The resolution adopted by the National Association of Insurance Commissioners in favor on the Uniform Electronic Transactions Act, which would legalize electronic records and signatures and require standardized formats, code, and identiers in all electronic transactions between heath-insurance payers and providers by 2002, supports this notion.13, 15 Approximately ninety-eight thousand persons die in the United States each year because of medical errors. Recently, the U.S. president himself called on the healthcare industry to report medical errors to the government. With B2B models catering to real-time information collection, reports like this could be generated as status reports. Before now, few data were collected on deaths caused by medical errors, and virtually none were shared or released to the government. But B2B networks can change that drastically. All related data could be accumulated and analyzed without delay, making it possible to x problems and prevent additional fatalities.58 Healthcare: B2C. B2C healthcare e-commerce is an electronic marketplace designed to inform healthcare users about medical products and services. The ultimate objective of B2C e-commerce is to either save future treatment costs by better educating users or generate revenues through sales of products and services. Among the changes sweeping B2C healthcare e-commerce is the blending of on-line customer service and a friendly voice on the phone; this is, in fact, occurring on the Web. Voice-overnet Protocol gives customers the opportunity to connect with service representatives right over the phone. Nine-to-ve (9/5) days are slated to be replaced by service twenty-four hours a day, seven days a week (24/7).20 To achieve its objectives, B2C e-commerce relies on creating attractive sites with easy-to-execute purchase transactions, organizing electronic discussion forums or chat groups, and providing privacy features to guard against theft of personal information. For instance, Portlands e-health companies in the Sapient Health Network (now a part of Healtheon/WebMD) used the Internet as a forum visited by patients, doctors, nurses, and therapists for research and information sharing. Its next proposal is to electronically link patients with data from doctors, pharmacies, health plans, laboratories, hospitals, and alternative medical practitioners. The goal of these endeavors is to help improve customer satisfaction, enhance the quality of care, and reduce healthcare costs.23, 24, 62, 64 Another example of B2C e-commerce is insurance shopping on the Web. As increasing number of employers are leaning toward dened contribution plans that give workers the right to assume responsibility for their own healthcare, with the employer contributing a preset amount, workers are

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scouring the Web looking for the best deals. The Web trafc for on-line insurance shopping is getting a boost from self-employed people, part-time workers, and small business owners.25 Some healthcare vendors are using the B2C platform as a means to promote brand loyalty by building relationships with patients, developing new Web-based markets, and collecting information about consumers buying habits. For instance, companies such as DrKoop, Health Network, Thrive Online, Medscape, WebMD, InteliHealth, MayoClinic, and MEDtropolis are some of the more than fteen hundred healthcare information providers on the Internet. They are winning over consumers who rely on the Web as their primary source of healthcare information.1 Healthcare suppliers are jumping aboard the Internet bandwagon as well and making healthcare goods available directly to consumers. Drugstore.com lls prescriptions in addition to offering sixteen thousand brand name items for sale. EHealthInsurance.com offers online insurance quotes and sales. Rx.com offers nonprescription drugs and related items. Vendors such as DrKoop.com and WebMD are forming partnerships with media and healthcare companies to provide trusted sources of health information. Providers can purchase subscriptions that they can then link to their own intranet or Internet Web site.7, 26

New Technologies for Healthcare E-Commerce

IT expenditures by the healthcare industry, typically averaging under 2 percent of revenue, have trailed other industries such as banking (6 percent) and transportation (14 percent), among others.3 Over the years, this negligence has resulted in an industry characterized by poor communication infrastructure, as well as ineffective and inefcient decision models. The next section provides a brief introduction to technologies that hold the promise of bolstering the IT status of the healthcare industry in both these areas within the B2B and B2C frameworks. Expert Systems. Expert systems are computer programs that mimic the behavior of experts. The most prominent uses of expert systems are solving diagnosis, interpretation, and prescription-type problems. Although the healthcare eld has not been a total stranger to using expert systems, the extent of usage has been limited, given the multitude of problems that could be addressed by expert systems. For instance, expert systems can assist with questions regarding medical coverage, standard diagnostic codes for reimbursement, claims verication, disease diagnosis, fraud detection, information about diseases, and wellness reminders, to name a few topics. Expert systems show considerable promise in their ability to help the healthcare industry. With the high degree of connectivity afforded by the Internet, these systems can reside on networks, providing valuable help to all concerned. This would be particularly helpful for populations in the rural areas that have limited access to quality healthcare services, as well as those with scarce resources.

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The promise that expert systems hold for the future of healthcare is being embellished on two fronts: (1) computational speed has been facilitated by faster chips, and (2) advances in natural language processing have eased the fears of nave users by accepting English-like input.18 ASPs. Application service providers (ASPs) allow heath service organizations to enter, manipulate, and store data at external sites that are accessible via the Internet. By design, this allows multiple parties access to select elds of the same record. The type of access may vary from read-only to total access. For instance, physicians, laboratories, pharmacies, administrators, and payers may be allowed to access select parts of the patients record and be selectively permitted to make modications to specic portions. In addition, the ASPs rent application software for processing. In brief, ASPs obviate the need for healthcare providers to build their own network, purchase hardware and software, and maintain it.13 Data Security. In an effort to look beyond the mandates posed by the Health Insurance Portability and Accountability Act (HIPAA), the data security issues can be generalized to include data integrity and timely access, in addition to patient condentiality. To effectively implement hierarchical access to data, that is, permit access to only selected elds of patient records for approved personnel, the technologies of choice are (1) digital signatures and encrypted key-based authentication and (2) biometrics. The rst technique employs a user name, a secret key (for example, smart card, port token, or wireless transmitter), and a digital signature to identify users; the second uses unique biological characteristics such as ngerprints, voice, or iris pattern for identication. Drastic cost reductions in the biometrics equipment, and the seemingly irrefutable identity matches that result from it, have made the biometrics identications increasingly popular.14 To keep private medical data safe from prying eyes, ID badges are tted with tiny transmitters that shut off the application running on the computer if the user steps more than fty feet away from the screen. Intrusion detection software guards the network against unauthorized users, as well as unauthorized activities by valid users.14

New Medical Standard

XML (extensible markup language) is a medical standard created in 1998 to permit effective communication between different healthcare players, independent of hardware platforms (mainframe, PC, network, and so on), operating systems (Windows NT, Unix, Linux, and so on), business applications, or database management system. Applications using XML use the local data definitions of the end user. Through its use of simple and universal specications, XML makes it easier for different healthcare partnershospitals, doctors ofces, nursing homes, suppliers, wholesalers, equipment manufacturers, and patients to share, store, and use data effectively. It has provided much-needed

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relief to healthcare organizations that are stuck with inefcient and ineffective legacy systems. XML technology modies these systems to permit changes in workow and care management. The timing needed for such adaptation is typically four to six months, compared to earlier approaches that needed eighteen to twenty-four months.16

Wireless Technology
Wireless technology can help the healthcare industry by making the network accessible to all employees for either sending or receiving information, independent of location. Whether the task deals with updating patient charges, posting vital readings, making treatment decisions, or retrieving patient information, including graphic and (potentially) voice data, high-speed data transfers at 22 Mbps offer help.17

Interactive Technologies
Several interactive technologies that hold the potential to improve healthcare have been developed:17 Advances in speech recognition have made it possible to attain 99 percent accuracy; automated medical transcriptions are now possible. Voice-controlled robots can assist doctors with certain programmed tasks in the operating room. Automatic voice translators can bridge the language gap by translating conversations in real time. To enhance customer service, interactive voice response systems can respond to frequently asked questions. Intelligent and optical character recognition systems have the ability to convert handwritten documents to text at speeds of over one thousand characters per second. Intelligent, voice-activated kiosks can educate patients regarding their specic ailment. Pattern Recognition. Articial intelligence (AI) techniques allow computers to mimic human behavior. A popular application of AI is neural networks. Highly integrated neural networks have the ability to identify patterns that link different input and output data. For instance, neural networks can be trained on claim information to help identify fraud potential in new claims.18 Convergence. Convergence allows the integration of voice, video, and data into one network, making total interaction possible between geographically separated entities. The key requirement for convergence is a large bandwidth. Despite the slow endorsement of this technology due to cost concerns, it is expected to ourish.19

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Concerns About E-Commerce

E-commerce has much to offer to the world and to the healthcare community in particular. Although the Internet infrastructure, coupled with B2B and B2C models supported by state-of-the-art technologies, would appear as perfect cures for all ills, some concerns should be voiced. In order to be perceived as a success, e-commerce needs to provide measurable benets, that is, there should be a perceived value in it for all stakeholders. The ability to lower costs, improve quality, and create access to services and information for all the consumers of care needs to be tested. There are nagging concerns about security, patient condentiality, and technology expenditures, especially considering that the primary user interface is a browser.2,3 There is much concern about healthcare data falling into the wrong hands. This was evidenced rst-hand when the popular Web site DrKoop.com, named for former surgeon general C. Everett Koop, oundered in part because the personal medical record concept was not being bought by the general public. End users did not feel comfortable typing their personal health data on-line for fear the data would be misused.28,38 Incidents of widespread hacking, including denial-of-service attacks (for example, those affecting Yahoo), the arrival of computer viruses in e-mail attachments (for example, the I love you and Joke viruses), increased incidents of scamming on the Web, and perceived lack of security, are just some of the general concerns that continue to linger and prevent widespread adoption of e-commerce, or at least hamper its growth. When one does a reality check on healthcare e-commerce purchases, however, the end result is startling. As of May 2000, less than 5 percent of medical supplies were being purchased on-line.7 Another major concern in the healthcare e-commerce arena is lack of investor condence in new ventures, primarily due to missing protability and poor market creation. Several B2B ventures are falling by the wayside due to a collision of visions and to an increasing number of ventures. Customers and suppliers are harder to nd, and revenue-generating matches are even more rare. Another important shortcoming is that, as of June 2000, nobody has managed to build a community around a market of any size. Even a rm like GE, using XML technology to update legacy systems and moving its supply chain partners to EDI, has not transformed itself to an e-business company. Some of the reasons for the lukewarm growth are the desire to guard private information and keep loyalty to certain suppliers, as well as poor returns on investment. For instance, in the year 2000 a survey of fty e-marketplaces found that 95 percent do fewer than ten thousand transactions a month, with 63 percent doing fewer than one thousand.47 The Healtheon/Web MD merger created a ruckus in the on-line world, with four hundred thousand doctors, forty-ve hundred hospitals, nine hundred health plans, and forty-six thousand pharmacies proposed to be connected via the Internet. The merger forced other potential players in the market to

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examine their on-line strategies. The lofty evaluations by analysts, despite the limited services offered by the alliance, created an atmosphere of intense speculation. The market verdict followed shortly. Investors lost faith in the promise of on-line business marketplaces. A severe fall in market capitalization of highying Internet startups and the return of brand-name brick-and-mortar companies in investor portfolios caused companies to reevaluate their strategies for survival. Stocks like Healtheon/WebMD, TriZetto group, MedicalLogic, and Neoforma.com, to name a few, have fallen 77, 73, 69, and 82 percent, respectively, between April 1999 and April 2000. The reasons for the fall are presumably several. The major ones appear to be skepticism on the part of users regarding the ability of these organizations to deliver on their promises and their lack of near-term protability, despite their market share growth prospects.55

Implications for Managers

Managers should be cautiously optimistic about healthcare e-commerce. They should recognize that positioning the supply chain for e-commerce is a longterm, industrywide transformation initiative that may potentially enable the healthcare industry to implement new services faster, leverage its investments in health information networks, and reduce the cost of patient care. The change will mean freedom from the old way of doing business. It may be uncomfortable, for instance, to move away from the rolodexes and highly personalized approaches to the Web. There will probably be no miraculous, instantaneous transitions. However, with proper IT infrastructure and implementation, e-commerce should allow new products to be offered quickly and exibly, simplify and reduce the cost of administering business, and provide timely, readily available information across the supply chain to better enable process improvements and efciencies. For those who are novices to technology or who are otherwise skeptical, leasing IT services for e-commerce for the short term may be a viable option. As with any information systems project, ongoing assessment will be needed to determine existing capabilities and projections for the future, including implementation plans that guide and measure progress. References
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About the Authors

Ajay K. Aggarwal, PhD, is professor of information systems and quantitative methods at Millsaps College, Jackson, Mississippi. Steven Travers, MS, MBA, is a manager in the e-Healthcare Group at Ernst & Young, LLP, Atlanta.